The Macroeconomy Exists, Ctd

To put a finer point on it than I would like, I think there is a tendency among structuralists and Austrians to complain that Keynesians only look at aggregate data and draw sweeping conclusions, but then the structuralists and Austrians fail to examine the disaggregated data.

I think there are a lot of things going on, but to put it in an Austrian frame, the ability to gather dispersed knowledge has increased many many with the introduction of the computer and the internet. Indeed, this is precisely why they are such a big deal. But, that’s another story.

The point I want to make here, is that we no longer face a tradeoff between simple aggregate measures and thinking about how various parts of the macroeconomy interact.

If the sector level is of interest to you then we have lots of sector data at our finger tips. If that’s not enough the Economic Census lets us dig down to a level of aggregation that is only roughly 3 firms deep.

We can’t get lower than three firms because of privacy concerns – though of course the data does exist and there are probably some circumstances under which it could be accessed.

Right now there are questions about the jobs. Is there such a thing as “the labor market” or are there simply lots of markets in which labor is bought and sold.

I think there is a labor market. Here are a few more pictures that help explain why.

So here are two very different sectors and their job opening rates. Openings as a percentage of employment overtime.

Even though the difference between sectors is at least as big as the difference in sectors, the key is that they move together.

We can also take a much wider view and do all sectors together

Now layered over top of this is the growth rate real real retail and food service sales. So that is how much stuff consumers are buying.

There is not a perfect match but I suspect some of that is due to how I am measuring the data. What I really need is year-over-year change in openings compared to year-over-year change is sales.

I can do that for overall opening but it would take longer than I have right now to do it for each individual. I hope from the above we can see that the individuals move together.

Moreover, openings is a slightly right shifted version of sales. This would seem to indicate that sales moves first. Though, of course, expectations matter.

25 comments

re: “To put a finer point on it than I would like, I think there is a tendency among structuralists and Austrians to complain that Keynesians only look at aggregate data and draw sweeping conclusions, but then the structuralists and Austrians fail to examine the disaggregated data.”

EXACTLY. There’s some interesting Austrian economics out there, but a lot of it consists of waxing poetic about complexity without really providing any insights about what actually happens.

My favorite case of this recently was when I was accused by commenters on Peter Boettke and Steve Horwitz’s blog of assuming that labor is a “homogenous blob” and not recognizing how specialized and hard to substitute labor is (this was around the time of Garrett Jones’s Mercatus Center paper on the stimulus a couple weeks back). They were telling me this as I was in the midst of writing a chapter for a volume on the engineering workforce, in which I was discussing the short-run inelasticity of labor supply for engineers due to the specialization of their training and the problems of easy substitution, and the implications this has for the engineering labor market. But apparently I missed the memo that labor is specialized.

Unfortunately, despite the “good Austrians”, this is what A LOT of the debate is like. Cliche critiques of others that rely on caricatures, without much of any substantive contribution besides the cliche critique itself.

a) We accuse you of not understanding the consequences of policy caused by the use of aggregates. We accuse you of failing to recognize non monetary costs. Especially to the political system. (The purpose of democracy is to provide the population with a means of competing against the bureaucracy.) We accuse you of failing to understand that politics and economics use different currencies. For good reason. And that (as the MMT people at least admit) the problem is not any policy. It is the use of any policy incrementally to product destructive ends. And the political system of property rights is the end which it all rests upon.

The innovator’s dilemma is applicable to entire nation states too. :)

b) Sure there is a labor market. And yes, It also consists of many markets only because people are not infinitely plastic — IQ matters, class matters, literacy matters, education matters, age matters, race matters, gender matters. People learn at different rates, and do so at different ages. The question is whether demand in the short term (which is your frame of reference) or capitalization of advantage over the longer term (our frame of reference is innovation – the creation of marginal differences) produce similar or different ends. If people flock to consumption of existing patterns they are effectively ignoring pricing signals that tell them (and policy makers) to do something else. Sure it may wash. We don’t know that or there wouldn’t be this debate. So you’re criticizing us using your short term time frame and short term data. And we’re criticizing you using our long time frame and long term data. And your data doesn’t prove anything because of that. I don’t know why that is hard to understand. Look for example at Mandelbrot’s analysis of noise and signal in the stock market. For all intents and purposes, it’s all noise. Noise related a bit too closely to the effect of the discount rate working its way through the system.

c) The charts above show only, as far as I can tell, that people are desperately looking for employment. They do NOT show, what employment that they COULD be in, had we different (industrial) policies, rather than monetary policy that prohibits capitalization of competitive skills in the german model. :) They say nothing about the long term.

I’m sure it’s pretty consistent that we criticized Keynes and we’re criticizing you, and Krugman, for it. Although we know Krugman does it for purely political purposes, we suspect you are just ….. mistaken?

d) (above) Daniel Keuhn again, makes no factual criticism. Doing exactly what he accuses us of. :) Cliche caricatures. Which is why I like teasing him.

e) Aggregates exist like gods exist. They exist, sure. Because we use them as if they exist. But that in itself tells us nothing about what would happen if we had better aggregates or better gods. :)

Philosophers are too often poor economists (especially those in the transcendental program – which has been an utter failure ). But economists are too often poor philosophers, and poorer historians.

re: “Daniel Keuhn again, makes no factual criticism. Doing exactly what he accuses us of. :) Cliche caricatures. Which is why I like teasing him.”

Do you want me to track down the comment? I’m pointing out that an underdeveloped criticism is often leveled and I could easily furnish you with evidence that it is leveled against us quite often. So it’s not a “caricature” at all. I differentiated between people who do this and who don’t do this. That’s entirely sufficient, Curt. If the shoe fits, wear it. If the shoe doesn’t fit, don’t get so bent out of shape over it. I think it’s pretty widely known (at least among the Austrians that know me) that I don’t dismiss Austrians as a group or that I’m not fair to them.

But that’s the whole point Daniel – it’s not an undeveloped criticism. It’s a well developed criticism. And you don’t answer it. And neither does Karl. And Paul, Delong and Thoma openly advocate for the ends described by that criticism — because they openly favor totalitarianism. Over the past year Karl has swung to openly favoring totalitarianism. You seem to pretty consistently advocate the methodological framework without addressing politics. And I follow you pretty closely. I dont know if you openly favor it, or just are mistakenly blinded by your love of the methodology.

The developed criticism we all levy, is that Economics is a subset of politics -IT MUST BE. But this is discounted by your side. As if it is immaterial. Sure, some austrians are absolutists (rothbardians). Sure some are practical classical liberals (hayekians), sure some are bleeding heart libertarians or neo classical liberals (moderate redistributionists). But fundamentally, it’s an argument to individual sovereignty as a means of ensuring a free polity and the prosperity that results from the innovation that results from it.

So, the first problem is politics, not economics. And the moment you grant greater utility to demand over the short term in economics than you do to politics over the long term, then you’ve either abandoned politics or advocated totalitarianism.

Karl’s arguments for supporting the demand side are not flawed. Its that he doesn’t address the full costs of that policy to the polity. ( I don’t know how much of his income comes from advising governmental entities, but I know he does work for governments. So he might be just playing to his audience.)

People aren’t supporting spending. Not because they don’t want to increase demand. It’s because people don’t trust their government. They can’t trust their government, because the polity is too large and with too different a set of ideals and ambitions. Aggregates are not a problem across people with similar interests. They are a problem against people with dissimilar interests. And your side does not account for dissimilar interests. THe most important interest is status signals within cultures, classes and races. A small nation state is redistributive for this reason – the off-book costs are tolerable. An empire (the usa, or europe) cannot enact the same policy because of these off-book costs. Or rather, it can only do so by totalitarian actions.

Economics is a subset of politics – it is subservient to political realities. Econometrics is an epistemological tool – it allows us to perceive patterns in complexity . Monetary policy is a convenient tool for temporarily fooling consumers into thinking that they have more money than they do relative to the world market for goods and services. But it comes at the expense of reinforcing existing outmoded patterns of behavior that would direct people to urgently change their values and decisions – like eliminating collective bargaining in schools so that principles can terminate weak teachers.

And that makes your framework a convenient falsehood. :) A convenient simplification that reinforces the slow transition to totalitarianism. Schumpepeterian intellectualism at it’s finest.